Move to E-Filing Hits a Paper Jam in State
California may be home to Silicon Valley, the Tech Coast and a host of Internet start-ups. We may own more personal computers per capita than the national average and e-mail may be our communication medium of choice.
But when it comes to filing taxes electronically, California is stuck somewhere in the mid-1990s.
Nationally, one in five tax returns was filed electronically last year. Here, only about one in eight was paperless. The specific numbers are 12.3% for Los Angeles, 14.1% for Southern California and 13.3% for the state.
The reason: California has some of the most, as well as the least, sophisticated taxpayers in the country. Complicated returns have been difficult to file electronically in recent years, although the Internal Revenue Service is reducing the barriers.
Meanwhile, California has a high percentage of immigrants and non-English speakers who may be unfamiliar with or wary of the technology, said Ted Meyer, chief technology officer for the IRS’ Los Angeles district.
That is starting to change. The IRS, both locally and nationally, is trying to boost its E-file and Telefile programs. National tax preparation chains have picked up the drumbeat by advertising the quick refunds available by using these technologies.
Costs for electronic filing have plummeted, with many tax preparers and some software packages offering the service for free.
The IRS is also experimenting with completely paperless returns for the first time.
IRS Provides Personal ID Numbers
The agency has invited 8 million taxpayers nationwide to use personal identification numbers to replace the last vestige of the traditional tax return: the signed form with W-2s attached, which until now had to be mailed to the IRS even if the return itself was sent electronically or via the telephone.
After filing a return by telephone or computer, participating taxpayers are prompted to enter the PIN.
The IRS will then confirm that the return has been filed--a service not available to paper filers. Electronic and telephone filers also will be offered the option of paying their taxes by credit card or direct debit from their checking accounts, and the payment can be delayed until April 15.
While credit card payments will be available for paper filers, the IRS has no plans to publicize the option.
Refunds, as in previous years, can be sent by mail or directly deposited into the taxpayer’s bank account.
The IRS is well behind California’s Franchise Tax Board, which has offered completely paperless filing for several years. But it’s a big step for the federal agency, which is trying to meet congressional guidelines to have 80% of Americans filing electronically by 2007.
“It’s ambitious, but if you think about where we were eight years ago in terms of technology and computers, it’s doable,” said Steve Jensen, IRS district director in Los Angeles.
It’s too early to tell if the new program is working, but the initial numbers are encouraging for the agency. In January, Southern California taxpayers filed 80,000 electronic returns, about 20% more than last year, Meyer said.
Even last year’s dismal figures were an improvement from the year before. Electronic filing grew by nearly 58% in Los Angeles, for example, compared to a 28% national growth rate.
Some Forms Are Excluded
Although once limited to the most basic returns, electronic filing has been expanded to accept all but the most esoteric forms. Unfortunately, many of those excluded forms are used by California taxpayers.
David Flamer, a Woodland Hills certified public accountant, said he still files paper versions of most of the complicated returns his boutique firm handles.
“Certain options transactions and special attachments can’t be filed electronically,” Flamer said. Attachments include explanation letters about complicated financial maneuvers.
Flamer said he does use electronic filing for simpler returns, which make up about 25% of his total.
“It sure triggers the refund quickly,” Flamer said.
Built-in math checkers for electronically filed returns catch many basic errors that typically slow the processing of paper forms, the IRS’ Jensen said.
With direct deposit, a taxpayer usually receives a refund from an electronically filed return within two weeks, compared with the three- to six-week wait typical with paper returns.
Electronic filing is also cheaper. Software vendors usually charged $15 to $25 for each electronically filed return two years ago, and some tax preparers charged their clients as much as $65. Today, vendors typically charge less than $10, and some provide the service for free.
Electronic Filing Brings Speedy Refund
The fast refund was what convinced Ion Baroi, a South Pasadena computer consultant who had been leery of the process, particularly of giving the IRS his bank account number for direct deposit.
Baroi’s CPA, John Stoller, is a leading advocate of electronic filing and last year finally persuaded Baroi to go paperless.
“He [Stoller] told me if the IRS wanted my account numbers, they’ll get them anyway,” Baroi said. “I got my state refund in 10 days, and the federal within two weeks.”
Stoller sees electronic filing as something approaching a national duty, since electronic filing eases storage and retrieval costs for the government.
“For the taxpayer, you’re contributing to a much more efficient operating system,” Stoller said.
The IRS’ Jensen agrees.
“If you’ve ever seen our service centers, there are carts and carts and carts of paper everywhere, even in the aisles,” Jensen said. “If a clerk pulls out a file and puts it away [in the wrong place], it’s hard to find.”
With electronic filing, “a warehouse full of paper can be stored on a couple of disks and you can find what you’re looking for.”
The IRS eventually hopes to virtually eliminate the tissue-thin W-2 and 1099 forms, which list employment and investment income.
That could be good news for thousands of taxpayers who have to scramble each February to replace lost or never-sent forms. Companies could send the necessary figures via secured e-mail or other electronic means to the government and the taxpayer, resorting to paper only when necessary, said Laurel Keleman, district spokeswoman.
“That day will come,” she said.
Liz Pulliam can be reached by e-mail at liz.pulliam@latimes.com.
